VAT registration: when you need it and what changes
A UK-established business normally has to register for VAT when its VAT-taxable turnover goes over £90,000 in a rolling 12-month period, or when it expects to go over £90,000 in the next 30 days alone. The tests have different registration deadlines. The threshold is about taxable turnover, not profit. HMRC: when to register.
A quick check each month helps you spot the threshold before it becomes an expensive surprise. This guide covers a typical UK-established business. Overseas businesses, international supplies and specialist sectors can have different rules.
What counts towards the VAT registration threshold?
You normally have to register if:
your VAT-taxable turnover for the past rolling 12 months goes over £90,000; or
you expect taxable turnover in the next 30 days alone to go over £90,000.
The second test isn’t simply “I’ll cross the rolling threshold sometime next month”. It looks at that 30-day period on its own. HMRC: when to register.
Taxable turnover isn’t profit. It includes zero-rated sales (taxable, but at a zero rate) as well as standard-rated and reduced-rated supplies. It doesn’t include exempt or out-of-scope sales. Some transactions need specific treatment.
When must I register after crossing the VAT threshold?
For the rolling test, you must tell HMRC within 30 days of the end of the month in which you went over the threshold. Registration normally starts on the first day of the second month after that month.
For the forward-looking 30-day test, you must apply by the end of that period. Registration starts from the date you realised you’d go over the threshold. If you register late, you can end up owing VAT from the date you should have been registered. HMRC: deadlines and effective dates.
Don’t wait for the end of the tax year. This is a rolling check.
What changes after registration?
You charge the right VAT on taxable supplies, keep the required records and send VAT returns. Under normal VAT accounting, you can reclaim qualifying VAT on business purchases, subject to the rules. You then pay the net amount due, or you may get a repayment.
The standard VAT rate is 20%, but not everything uses that rate. A £1,000 fee with 20% VAT added becomes a £1,200 invoice. The £200 VAT isn’t extra profit. HMRC: how VAT works.
Unless they’re exempt, VAT-registered businesses generally need compatible software and digital records under Making Tax Digital for VAT. This is separate from MTD for Income Tax. HMRC: VAT records.
Should you register voluntarily?
If you’re below the compulsory threshold, registering voluntarily may let you reclaim qualifying input VAT (the VAT you pay on business purchases). But think about your customers too. Can they reclaim the VAT? Would you put your price up, or absorb the VAT within the existing total? Some VAT-registered customers can’t recover all their VAT.
Before you choose, compare how much VAT you’re likely to reclaim, the effect on your pricing and the admin involved. Registering isn’t automatically a saving. HMRC: voluntary registration.
What about the Flat Rate Scheme?
Qualifying businesses with expected VAT-taxable turnover of £150,000 or less, excluding VAT, may be able to join. You normally work out what you pay HMRC as a set percentage of your VAT-inclusive turnover, instead of reclaiming most VAT on purchases separately. Limited-cost businesses (broadly, businesses that spend very little on goods) may need to use the 16.5% rate. Check the detailed rules on eligibility and goods before you assume your sector’s lower rate applies. HMRC: Flat Rate Scheme, flat rates and limited-cost rules.
What if turnover falls again?
If you expect your taxable turnover to fall below the £88,000 deregistration threshold, you can ask to cancel your registration, subject to the rules. Cancellation isn’t automatic. If you only go over the threshold temporarily, you can sometimes get an exception from registering, but HMRC must agree. HMRC: cancelling registration, temporary breaches.
